President Obama called on U.S. businesses to do more to help grow the economy, saying that while the unemployment rate is getting better and jobs are being added, the U.S. needs “to get there faster.”

“Businesses have a responsibility, too,” said Obama in his weekly address on Saturday. “If we make America the best place to do business, businesses should make their mark in America. They should set up shop here, and hire our workers, and pay decent wages, and invest in the future of this nation. That’s their obligation.”

President Obama urged American businesses on Monday to “get in the game” by letting loose trillions of dollars being held in reserves, saying that they can help create a “virtuous cycle” of more sales, higher demand and greater profits that will put people back to work and turn around the sluggish economy.

“If there is a reason you don’t believe that this is the time to get off the sidelines — to hire and invest — I want to know about it. I want to fix it,” Mr. Obama said during a speech to business leaders at the U.S. Chamber of Commerce.

In the speech, Mr. Obama pledged to eliminate unneeded regulations and simplify the tax code, but said companies have responsibilities to help the economy recover.

“Ultimately, winning the future is not just about what the government can do to help you succeed,” he said. “It’s about what you can do to help America succeed.”

In a free-enterprise, private-property sys­tem, a corporate executive is an employee of the owners of the business. He has direct re­sponsibility to his employers. That responsi­bility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while con­forming to the basic rules of the society, both those embodied in law and those embodied in ethical custom. Of course, in some cases his employers may have a different objective. A group of persons might establish a corporation for an eleemosynary purpose-for exam­ple, a hospital or a school. The manager of such a corporation will not have money profit as his objective but the rendering of certain services.

In either case, the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation or establish the eleemosynary institution, and his primary responsibility is to them.

That, essentially,why corporate fiduciary duties exist, to protect the stakeholders and ensure that their employees, the officers and directors of the corporation, are acting in the interests of the corporation, rather than their own interests or the interests of some third party. When you introduce the idea of “social responsibility” into the equation, though, things become rather complicated:

What does it mean to say that the corpo­rate executive has a “social responsibility” in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers. For example, that he is to refrain from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price in crease would be in the best interests of the corporation. Or that he is to make expendi­tures on reducing pollution beyond the amount that is in the best interests of the cor­poration or that is required by law in order to contribute to the social objective of improving the environment. Or that, at the expense of corporate profits, he is to hire “hardcore” un­employed instead of better qualified available workmen to contribute to the social objective of reducing poverty.

In each of these cases, the corporate exec­utive would be spending someone else’s money for a general social interest. Insofar as his actions in accord with his “social responsi­bility” reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers’ money. Insofar as his actions lower the wages of some employees, he is spending their money.

(…)

Can the corporate executive in fact discharge his al­leged “social responsibilities?” On the other hand, suppose he could get away with spending the stockholders’ or customers’ or employees’ money. How is he to know how to spend it? He is told that he must contribute to fighting inflation. How is he to know what ac­tion of his will contribute to that end? He is presumably an expert in running his company-in producing a product or selling it or financing it. But nothing about his selection makes him an expert on inflation. Will his hold­ ing down the price of his product reduce infla­tionary pressure? Or, by leaving more spending power in the hands of his customers, simply divert it elsewhere? Or, by forcing him to produce less because of the lower price, will it simply contribute to shortages? Even if he could an­swer these questions, how much cost is he justi­fied in imposing on his stockholders, customers and employees for this social purpose? What is his appropriate share and what is the appropri­ate share of others?

The reality of “corporate social responsibility,” of course, is that it isn’t the corporate executive who gets to make the decision about what is “socially responsible,” it’s the state. What Obama is proposing isn’t the idea that corporate executives should act on their own to decide how to be socially responsible, but that they should cooperate with the government at the expense of the interests of their employers and their fiduciary duties, because that is “socially responsible.” As my co-blogger Dave Schuler points out in a post on this topic over on his own site, that very attitude leads to many of the problems we have today:

When you insist that corporate directors’ fiduciary responsibilities be extended to address all sort of social goods, the good of society as a whole, while absolving legislators and regulators from any responsibilities whatever, you arrive at a destination very much along the lines that we see now. Large corporations do pretty much whatever they care to, with a confidence rooted in experience that they’ll be allowed to skate on their responsibilities, small companies will either have their doors closed by regulators or close their doors themselves because they can’t compete under a set of regulations that were written with the biggest companies in mind, entrepeneurs will be discouraged from forming new companies, and regulators will look the other way at the most egregious offenses of the largest companies, not wanting to threaten their prospects for future employment.

A corporation is socially responsible when it maximizes shareholder value within the bounds of the law. Efforts by President Obama and others to impose some form additional duties on corporate officers in the name of the “good of society” only serve to harm the interests of shareholders, impair economic growth, and increase the power of the state at the expense of both individuals and the free-enterprise system. If President Obama wants businesses to be “responsible,” all he needs to do is to tell them to go out and make the biggest profits they can. That’s why corporations exist.

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About Doug MataconisDoug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway.
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Comments

I’d agree, if corporate owners were fully liable for the downside. But they’re not, and any losses beyond the capital in the firm, but not the owners’ capital, are absorbed by society. If corporations are going to have limited liability and stockholders can slough off a large part of their risk onto society at large, then, yes, corporations have social responsilbity.

In the abstract, you’re right, because a corporation is maximizing profits by best addressing supply and demand, minimizing inefficiencies, etc. It’s easy to say that the duty of a corporation is to maximize profits in the sense of finding the right price point and managing costs wisely. Those moves also tend to benefit society at large.

In practice, though, what else do companies do? They reduce costs by externalizing as many as possible. They try for regulatory capture. They monopolize. They patent troll. They “securitize” the insane investments they make, purposefully make those bonds as difficult to understand as possible, and then bet against them. And when all else goes wrong they try to posture as being Too Big To Fail for the local community of a well-served congressional district.

Something I heard a long time ago is that coupling the pure profit motive with corporate personhood does nothing but create a subpopulation of sociopaths living in our midst. And it gives the less scrupulous a license to act out their worst impulses towards their neighbors.

It must be clear to Obama by now that the narrative of his first term is how he’s cleaned up after that sort of bad behavior. Which is where the frustration comes from. I think you should interpret his comments as a call for businesses to focus on maximizing profits in ways that society would be improved if other businesses emulated- increasing supply is the moral justification for the profit motive- and stay away from all the rent-seeking crap we’ve seen an explosion of lately.

I completely agree with Doug. Blurring the line of what a corporation’s responsibilities are is a disservice to the stockholders. Just make money by providing products and services the public wants. It’s not fashionable but it is the right way to do things.

So if a corporation can save a buck by dumping a bunch of not yet outlawed toxic waste into the public drinking supply, it’s not only in their benefit, it’s a moral good?

I keep hearing from the responsible right that it is morally outrageous for people to walk away from houses they can’t afford, that they have a responsibility to pay back the banks no matter how much damage it does to their lives and loved ones.

But corporations — which, for reasons I will never agree with — are considered persons by our laws have absolutely no moral obligations at all. Just make as much money for your shareholders as possible.

So morality stands revealed as nothing more than a stick to beat poor people with, while the rich are free to do as they please.

EMRV, anjin-san and Andyman all make the same mistake. They lament that corporations do not suffer the consequences of their actions without considering why.

I don’t know EMRV or Andyman, but I do know anjin-san, and he/she has nevre seen a government program/solution/subsidy etc he/she didn’t like. So you create your own problem. Once you adopt a philosophy that makes private citizen’s problems public problems, don’t whine when private citizens look to the public to subsidize their decisions. Otherwise you are just irrational.

A perfect example: here in Chicago, despite two days of prior warning about the impending blizzard – and specific warnings to not travel on Lake Shore Drive – people drove on LSD, and got stuck……and towed………and want the “government” to pick up the tab. NO PERSONAL RESPONSIBILITY.

So stop bitching about corporations who capitalize on this ridiculous worldview, when everyone is doing it. To coin a phrase – don’t vote for politicians who promise the world at only 3% of the population’s expense: just say no.

A corporation is socially responsible when it maximizes shareholder value within the bounds of the law

This unbelievably simplistic viewpoint reveals so much of what is wrong with libertarianism.

So a company that moves all of it’s jobs overseas, pollutes the environment as much as possible to cut costs, and works the system to pay as few taxes as possible may increase profits and “maximize shareholder value,” but is that socially responsible? Hell no. You know why? Because shareholders’ pocketbooks are not the same thing as society.

This is why, if we ever let libertarians be in charge, this country would join the third world in a generation or two. You guys don’t give f*ck all about the United States or your fellow citizens.

They lament that corporations do not suffer the consequences of their actions without considering why.

I know why. Because those corporations buy politicians, who eliminate regulations and create loopholes, allowing those corporations to legally lie, cheat, and steal and then get bailouts when it all falls apart! Capitalism!

I’m sure that’s really the fault of unions or political correctness or some other libertarian boogeyman, though.

So a company that moves all of it’s jobs overseas, pollutes the environment as much as possible to cut costs, and works the system to pay as few taxes as possible may increase profits and “maximize shareholder value,” but is that socially responsible? Hell no. You know why? Because shareholders’ pocketbooks are not the same thing as society.

And neither is the government, politicians, or bureaucrats and regulators “society” unless, of course, you believe the foolish idea that once someone goes to work for the the government they lose any desire to pursue their own self-interests and are not at all interested in the accumulation of power. Lord Acton, and a few thousand years of human history, would argue otherwise.

To answer your hypotheticals, though. If a corporation can maximize profits by lowering labor costs, then I see no moral argument against it. If that means “moving jobs overseas,” that’s what it means. That’s something that’s been going on for hundreds of years, and I for one am glad to have the benefit of less expensive products that results. As to the second, you ignore the “within the bounds of the law” part. Polluting other people’s property is a violation of the law even before you take environmental laws into account. As for the third, again, if you don’t think that government actors act in their own self-interest (rather than the interest of “the people”) then you’re just being naive.

Frankly, i trust the average corporate executive to act in the interests of the shareholders that employ him than I trust the average politician to act in the interests of the people who put him in power

Others have done a good job of bringing up two gray areas in this calculus: 1)companies receiving an implicit or explicit government guarantee against failure, and 2)profit-making decisions that are ethically odious.

The latter, especially, is tricky. If a company could maximize long-term value for shareholders by dumping toxic waste into the reservoir used for drinking water, does it have an ethical obligation to do so as long as a ban against doing is not explicitly written into that country/city/town’s laws?

“Frankly, i trust the average corporate executive to act in the interests of the shareholders that employ him than I trust the average politician to act in the interests of the people who put him in power”

Aaah, its generally understood that the average business executive will operate their company in a manner that’s most beneficial to himself, not his shareholders.

“Frankly, i trust the average corporate executive to act in the interests of the shareholders that employ him than I trust the average politician to act in the interests of the people who put him in power”

Your trust is misplaced, as that corporate executive is just as likely to act in his own self-interest before those of shareholders or anyone else, just like the average politician…

> but I do know anjin-san, and he/she has nevre seen a government program/solution/subsidy etc he/she didn’t like

Drew, you don’t know me nearly as well as you think you do. I could just as easily say you have never seen a government program/solution/subsidy etc that you don’t hate. And I would be doing you a disservice by turning you into a one–dimensional characture instead of giving you credit for being a fairly bright guy who understands that the world is a pretty complicated place, and that things are not always as clear cut as they may seem to be on the surface.

BTW, the Audience power cords are smoking. Next stop Harbeth speakers.

Aaah, its generally understood that the average business executive will operate their company in a manner that’s most beneficial to himself, not his shareholders.

And if that happens, the law has provisions to protect shareholders. No similar protections exist for citizens victimized by politicians who have decided that they know what is better for us than we do.

Let’s see, banks, auto-makers, home-builders, health care companies…. what do those all have in common?

They rent-seek to a fare-thee-well. That’s why I find a lot of the rhetoric about government “getting out of the way” amusing. Business does not want government to get out of the way. It wants government to to get in the way, to get in the way so as to help it. To help it with preferential taxes, with subsidies, with loans (eg, the Ex-Im Bank), with tariffs, et cetera, et cetera, et cetera. And ever was it thus. The very first piece of substantial legislation passed by the very first Congress was the Tariff Act of 1789. (In fact, there’s a sense in which one can make the argument that the US Constitution is the most elegant response to rent-seeking in the history of mankind.)

So when Obama says in his speech:

[D]iscovering new ways to make buildings more energy-efficient will lead to new jobs and new businesses. Over the last two years, we’ve seen a window manufacturer in Maryland boost business by 55%. A lighting company in North Carolina hired hundreds of workers. A manufacturer in Pennsylvania saw business increase by $1 million.

All we did for these companies was provide some tax credits and financing opportunities.

He’s describing the real and enduring relationship between business and government in this country. And when he says in this his speech:

Supporting businesses with this kind of 21st century infrastructure and cutting-edge innovation is our responsibility. But businesses have a responsibility, too. If we make America the best place to do business, businesses should make their mark in America. They should set up shop here, and hire our workers, and pay decent wages, and invest in the future of this nation. That’s their obligation. And that’s the message I’ll be bringing to American business leaders at the Chamber of Commerce on Monday – that government and businesses have mutual responsibilities; and that if we fulfill these obligations together, it benefits us all. Our workers will succeed. Our nation will prosper. And America will win the future in this century just like we did in the last.

he seems to me only to be giving voice to the contours of the arrangement that’s existed between government and business from the get-go.

If corporations have some of the rights of citizens, its quite reasonable they have some of the responsibilities as well. Unless the argument is that citizens shouldn’t have social responsibilities either?

Or we could just remove their ‘legal personality, which would also solve the issue … they’re not people, so why should they have either the rights or responsibilities of people?

@Brett:
“The latter, especially, is tricky. If a company could maximize long-term value for shareholders by dumping toxic waste into the reservoir used for drinking water, does it have an ethical obligation to do so as long as a ban against doing is not explicitly written into that country/city/town’s laws?”

Should there really be any environmental laws? And shouldn’t the EPA just be defunded? And with no laws to stop them, shouldn’t the companies just dump their waste in the woods? It would surely maximize profit.

Let those who want to have clean air or toxic free water clean it up. Putting burdens on companies not to pollute is hurting their profits.

Whether you intend for it to be or not, this is a strong case for the law to let them get away with as little as possible. The primary way to accomplish this is with a strict regulatory regime.

Which is why I support regulation. What do we have now? We have a system with 80,000+ pages of regulations that are only enforced when the regulators feel it’s appropriate to enforce them. Lax regulations didn’t cause the financial crisis. Bad policies and lax enforcement of existing regulations did.

“So if a corporation can save a buck by dumping a bunch of not yet outlawed toxic waste into the public drinking supply, it’s not only in their benefit, it’s a moral good?”

Not just a moral good – the corporate executives would have a legal duty to do such dumping. They would be violating their fiduciary responsibility by wasting the shareholders money by disposing of the waste in some more expensive manner.

but then again there is nothing saying that the government has to sanction the charter of a corporation. Theoretically the government can dissolve a corporation with a snap of their fingers although this is an action not taken in well over one hundred years. At the beginning, corporate charters were only granted for a limited time subject to renewal. maybe it’s about time we started get back to that idea.

If the company employs unskilled workers, they should just dump the waste on-site, that’s probably the most cost effective way, saves transportation costs and it’s a great way to replace workers regularly. Forcing a company to pay for poisoned, sick, or dead workers is bad for their profit and shouldn’t be allowed. If allowed, companies will just move somewhere else where they can kill their employees without impunity.

Unless the toxic waste could damage any machinery that would be expensive to replace, if so, then the waste should be dumped in the woods or in the nearest stream.

I was just talking about the limited liability that all corp’s get under the law. If you put $100,000 into a corporation, your risk is $100,000, even if the corp runs up $200,000 worth of liabilities on that money. The overflow debt simply runs outside the corp in the form of unpaid creditors, uncleaned-up sites, defaults, etc.

So because a corporation occasionally breaks the law we should toss aside the basic premise of why we form them to start with? Making a profit is not a bad thing and it allows business to hire more people and produce more products wanted by the public. Sure some of those products are a bit dubious but remember corporate business also produces drugs that heal, products that make us safer, and the necessities of life. The liberals here can bring up the bad things corporations have done and will do again but can they put those in context of what good they do?

What about the social responsibility of paying double taxes? C corps pay on corporate profits and then the stockholders pay again when dividends are paid. Corporate business not only employs workers but it pays it’s share of employment taxes like FICA. Let’s not forget property taxes, excise taxes, franchise taxes, state and local taxes, unemployment taxes, and others. If a corporation pays no income taxes at all they still pay other taxes that fulfill some of that social responsibility.

And what about the individual stockholders and their charitable contributions? How about the executives and workers? It seems any social responsibility would be might by them privately.

We will always hear of corporate malfeasance but most corporations are law abiding responsible businesses who generate the wealth of this nation and give us the lifestyle we live. Bad mouthing them is akin to a adolescent complaining about their parents. Time for those on the left to grow up a bit.

“The directors of such companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own…. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.”
— Adam Smith, On the Wealth of Nations

So while we assert that politicians cannot be expected to separate their public actions from their private morals, we assert exactly the opposite with the individuals who run businesses?

And don’t forget: it is individuals who run businesses. Individual men and women. People with names, and faces and families, not robots. People.

And the theory is that a class of people should be empowered, even encouraged, nay required, to set all moral consideration aside while conducting their business?

Naive, simplistic, sophomoric Ayn Rand bullshit.

1) No one can simply declare themselves exempt from morality. That’s not how moral standards work. I cannot simply decide for example that I’m no longer enjoined from ridiculing children I happen across in a playground, or calling random strangers ugly, or spitting in someone’s drink.

2) In practice, no one does exempt themselves from moral considerations because homo sapiens is intractably subjective. People have beliefs, those beliefs do not disappear because they work for company A or company B. So what’s being proposed here is not that corporate officers divorce themselves from moral standards, but that they substitute a rapacious and self-serving standard instead and pass that off as amorality rather than immorality.

So, sorry, Atlas, shrug all you want, you are still held to the same moral standards as anyone else. When you throw a man out of a job so you can pay yourself his salary, you’re a f**king a**hole. Period. When you have a choice between keeping a job in the US and paying your millionaire stockholders an extra penny by sending the jobs to India, you are un-American. Period.

Michael, A bit extreme. What you’re missing is that no one expects the businessman to be exempt from morality. Good business sometimes means doing things that don’t squeeze the last penny out of the product. Strategic thinking allows business to be a good neighbor but the problem here is the President calling on business to think his way about social responsibility. Dosage and choice should not be something the state is involved in.

The difference between (and there is a profound difference) politicians and business is one of knowing what motivates the person across the table. I sit down with another businessman and I know he’s looking to make a profit. The politician may claim various motivations when negotiating but there is no way of knowing for sure. That desire for profit establishes reasonable expectations and an arms length transaction. With the politician or bureaucrat it’s seldom that way.

The moral picture is not always black and white either. Those jobs going to India may employ desperately poor Indians and change lives while the keeping them here may only keep union wages inflated. If unions are driving out the jobs are they un-American?

Morals should not be set aside when conducting business but given the responsibility of protecting other peoples money (the stockholders) priorities must be set. The last people we should listen to when it comes to fiduciary responsibility are people from the public sector including the President. They have violated the trust given them not only to us but to generations not yet born. How’s that for some socially responsible behavior?

@Steven P- As far as I can tell, he has passed no laws or even suggested any laws requiring socially responsibility on the part of business. What is wrong with using the bully pulpit to make such a request?

Steve P — When you say that keeping jobs here may just “keep union salaries inflated,” you are saying that it’s better that Americans be unemployed and starving than workers be paid the fruits of their work if they obtain that through collective bargaining.

But I guess this is another issue like corporate morality or government health insurance versus charity — it should always be at the discretion of the businessman. The owner should have the right to pay as much as he wants, and it should be entirely his decision, and the needs of his workforce should not enter into the discussion at all. Let them quit and die if they don’t like it.

Amused to hear the voice of American small business loathes workers this much. Not that I’m surprised…

This is an easy one, the Bainbridge quote gives the answer: “Sustainably maximize long-term profits”. Most people take that to mean make as much money as you can – but if you read it for the long term, it also means build up trust with your customers so they will keep coming back and the way to do that is to show social responsibility.

You don’t have sustainable long term profits if you exploit your customers or your employees (or your management, but that generally is not a problem in the US that I can see). So yes, a corporation has social responsibility – don’t sell unsafe products, don’t screw up the environment where your customers live (thereby forcing them to spend money on it rather than your product), don’t lie, make certain your employees make a wage commiserate with their skill, help make certain there is a pool of future employees, etc.

It’s not controversial that business works best when all parties walk away with something, social responsibility is part of that. The best businesses realize it isn’t about tomorrow, but about where you’ll be five years, or twenty, years from now.

> I sit down with another businessman and I know he’s looking to make a profit.

Really? Maybe he’s looking to make a killing. I refer you once again to Kerry Killinger. A profit just did not cut it for him, he wanted buy an island money, and he did not really care who got hurt in the process. The problem is, there are a lot of folks who have no problem with using scorched earth tactics in business if gets them the payday they are looking for.

So perhaps you don’t know quite as much about the other guy as you think you do.

I wonder how much Mother Teresa, er, MR, gives to charity. As much as Al Gore and Joe Biden?

Since you ask. My wife and I have maintained a small private “charity” for I believe the last decade. (Sorry, as always I’m bad at dates.)

We call it Creature Comfort and it’s located in Minneapolis where we were living at the time. Since MN has a pretty good social safety net we found a hole in the net and plugged it in a small way. We pay the expenses — purchase, medical, etc… of companion animals for a small number of people with disabilities. Some have CP, others are wheelchair-bound for other reasons, and their dogs/cats are about the only thing they have.

We don’t ask for or accept outside moneys and we don’t take a tax deduction for it. Of course we also contribute to other charities and do take the deductions for those.

(Wait, no, it’s 13 years because it was started around the time our son was born.)

“COLLECTIVE SOCIAL” RESPONSIBILITY OF ELECTED PUBLIC SERVANTS
A crucial “social responsibility” of elected public servants to enable citizens to be internationally competitive. Yet, with millions unemployed, this notoriously lobby serving president and congress lack social and economic policies which make it more profitable for American companies not to outsource vital technology and jobs to foreigners.